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Trump vs Iran: A War Of Words

The war of words between the United States and Iran has been heating up as the return of U.S. sanctions threatens to take more than 1 million bpd of Iranian oil off the market.

That latest in a string of accusations came from a senior Iranian oil official, who said that U.S. President Donald Trump had been ‘taken hostage’ by Saudi Arabia and other oil producers who had him believe that they can compensate for the expected loss of Iranian oil exports.

“It seems President Trump has been taken hostage by Saudi Arabia and a few producers when they claimed they can replace 2.5 million barrels per day of Iranian exports, encouraging him to take action against Iran,” Iran’s OPEC governor Hossein Kazempour Ardebili told Reuters this week.

Brent Crude prices briefly broke above $80 a barrel in May, after President Trump withdrew from the Iran nuclear deal and announced that new sanctions would be imposed on Iran, including on its crude oil exports.

Iran’s regional archrival and the largest of the OPEC producers, Saudi Arabia, came to the rescue to ‘ease consumer anxiety’ amid rallying oil prices that threatened to dampen oil demand.

At the end of June, the Saudis and Russia had OPEC and its Moscow-led non-OPEC partners agree to cut compliance rates to 100 percent from the very high compliance of more than 150 percent in previous months. According to Saudi Arabia, the cut in compliance would translate into a production boost of around 1 million bpd by OPEC and its non-OPEC partners. The Saudis and their Gulf allies the United Arab Emirates (UAE) and Kuwait, plus non-OPEC Russia, are basically the only oil producing countries in the deal that are capable of boosting their oil production.

But Iran claims that President Trump is wrong to expect that Saudi Arabia and other large producers can compensate for the decline in Iranian crude oil supply that new sanctions would cause.

“So they hanged him (Trump) on the wall. Now they want to have a mega OPEC, congratulations to President Trump, Russia and Saudi Arabia,” Kazempour told Reuters this week.

Iran’s OPEC governor has addressed President Trump several times over the past month.

Early in July, Kazempour told Reuters that “The responsibility of paying unnecessary prices for oil by all consumers of the whole world, especially in U.S. gas stations, is solely upon your [Trump’s] shoulders and the price of over $100 per barrel is yet to come.”

Those comments came after President Trump took to Twitter again to complain about high oil prices and criticize OPEC, demanding that prices be reduced. Iran responded to that tweet by Kazempour saying that the President’s tweets about oil had already pushed up oil prices by at least $10 a barrel.

Last week, President Trump addressed Iranian President Hassan Rouhani on Twitter in an all-caps tirade, threatening “CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE.”

Early this week, Trump said at a news conference, answering a reporter’s question, that he would meet Iran “anytime they want.”

“If we could work something out that’s meaningful, not the waste of paper that the other deal was, I would certainly be willing to meet,” the U.S. President added.

Amid heightened U.S.-Iran rhetoric in recent months, analysts are trying to guesstimate how much Iranian oil the U.S. sanctions would choke off the market and how this supply disruption would impact oil prices.

Bank of America Merrill Lynch sees oil prices hitting $90 a barrel by the second quarter of 2019, as Iranian oil barrels are removed from the market and other supply disruption risks threaten the tightening oil market.

According to Helima Croft, managing director and global head of commodity strategy at RBC Capital Markets, the U.S. sanctions on Iran are “incredibly coercive” and more than 1 million bpd of Iranian oil would be taken out of the market.

The main factor that will keep Iranian oil on the market is how successful Tehran is in convincing Asian buyers to purchase more Iranian crude oil, ING commodities strategist Warren Patterson said in mid-July.

China will be central to this Asian strategy and, as Patterson points out, “given the worsening relationship between the US and China with the escalating trade spat, China is unlikely to listen to calls from the US to cut purchases. If anything, with the potential for discounted Iranian crude, we could, in fact, see China stepping in as a bigger buyer. In doing so, this would partially offset the impact from US sanctions on Iran”. ING analysts continue to assume that Iranian supply will drop by 500,000 bpd with the sanctions, but warned that they are “conscious of the fact that we may have to increase this number moving forward.”

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